Topeka Bike Company received a $940 check from a customer for the balance due. The transaction was erroneously recorded as a debit to Cash $490 and a credit to Service Revenue $490. The correcting entry is
A) debit Cash, $940; credit Accounts Receivable, $940.
B) debit Cash, $450 and Accounts Receivable, $490; credit Service Revenue, $940.
C) debit Cash, $450 and Service Revenue, $490; credit Accounts Receivable, $940.
D) debit Accounts Receivable, $940; credit Cash, $450 and Service Revenue, $490.

Question

Quizplus · Accepted Answer

The correcting entry should reverse the erroneous entry and record the correct transaction. Since the customer paid the balance due, the correct entry would be to debit Cash and credit Accounts Receivable for $940. To reverse the erroneous entry, we need to debit Service Revenue for $490 and credit Cash for the same amount. This leaves us with a remaining debit of $450 that needs to be recorded. This can be done by debiting Accounts Receivable for $450 and crediting Service Revenue for the same amount. Therefore, the correcting entry is: debit Cash, $490; debit Accounts Receivable, $450; credit Service Revenue, $490; credit Accounts Receivable, $940.

Topeka Bike Company Received a $940 Check from a Customer